Key Points
Palo Alto is due to report Q4 earnings this evening.
Most analysts expect the company to guide to $13.8 billion in sales for next year.
Scotiabank hopes it will be enough if Palo Alto promises only $11.1 billion.
Palo Alto Networks (NASDAQ: PANW) stock probably should have gone up today. Instead, it's going down -- off 4.7% as of 10 a.m. ET.
Shares of the cybersecurity company should have gotten a boost this morning when Scotiabank analyst Patrick Colville raised his price target to $430 per share. So why aren't investors taking their cue from Scotiabank and buying?
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Why Scotiabank loves Palo Alto Networks stock
Surveying institutional investors, Scotiabank reports that "Palo Alto Networks remains strategically well liked," which should mean good things for the stock -- and probably helps explain why Palo Alto stock has doubled over the past 52 weeks. The question is whether Palo Alto will remain popular after reporting Q4 earnings this evening?
According to Yahoo! Finance estimates, most analysts expect Palo Alto to report $3.35 billion in Q4 sales (32% growth from last year's Q4) and $11.4 billion in annual sales for all of fiscal 2026 -- growing to $13.8 billion in fiscal 2027. These are the consensus targets.
What's strange is that, according to Colville, Palo Alto stock should be able to hold onto its share price (i.e., remain "flat" after earnings) so long as it reports $9 billion in annual recurring revenue at the end of 2026 (which you'll notice is less than $11.4 billion), and guides to only $11.1 billion in fiscal 2027 (which you'll notice is much less than $13.8 billion)!
What's next for Palo Alto stock
Is Scotiabank trying to prepare investors for disappointment if Palo Alto promises less revenue in 2027 than the consensus tonight? It kind of feels like it. At the same time, the analyst notes that "PANW shares [cost] double their five-year average EV/EBITDA valuation."
To me, this sounds like the stock is overvalued and will fall if it misses on guidance tonight.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.